Objection #1: It’s Inconvenient

One of the main objections I hear about cash is that it’s inconvenient. It’s true that using cash may take a little longer than using credit cards. In fact, the credit card industry is well aware of this and emphasizes this point. Have you ever seen the TV commercial with graceful music playing as people use their credit card to check out. Suddenly someone pulls out cash. The needle scratches and the music stops as the person fumbles around with their money and all the other people look on disapprovingly.

That commercial presents a powerful emotional image.

The fact is, cash isn’t that much more inconvenient. In fact, some cash transactions are faster than credit card transactions. Even more important, you want to remember the effect using cash will have on your budget. Think of all the time and pain avoided by not overspending and not having to agonize every month while trying to reconcile your accounts. That pain is much worse than the slight inconvenience caused by using cash.

Objection #2: My cash might get lost or stolen

First let’s talk about cash getting lost. There is no more chance of you losing your cash than there is of losing your credit cards and/or other items in your purse or wallet with that accompanying inconvenience and risk.

To prevent getting your cash stolen, you do want to be careful not to flash around gobs of cash. It’s helpful to have cash in envelopes for this purpose. It allows you to just use the cash you need. You can also make the cash ready and easily accessible before you go into the store so you don’t have to flip through all of it in the store. To do so, take out the money you’ll be using and put it in a convenient and easily-accessible pocket separate from the rest of your cash. No one will be the wiser.

Emily misplaced some of her cash one month and while that’s never a welcome occurrence, it’s much better to lose a couple hundred dollars once than to perpetually overspend $500 every month like we were doing before switching to cash. This was a one-time occurrence in the 5 years since we’ve been using cash.

One more suggestion that could help prevent lost or stolen cash is to withdraw money from your bank in chunks. Instead of taking all the money out once during the month, take half out at the beginning and half out mid-way through the month. This minimizes the possible amount you could lose if that misfortune occurred.

Try it to believe it

In the end, some people have to try using cash to really experience the benefits and become converted. You can come up with excuses all day about why you shouldn’t use cash. Go ahead and do that and I’ll talk to you in a year and find out that your budget still doesn’t work and you’re still living paycheck to paycheck.

I personally was a big skeptic and only saw the huge benefits of cash after doing a cash budget for a few months. Now I’d never go back.

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More From sjpeer

• How to Create a Master Budget
• 3 reasons most budgets don’t work and how to fix them (a.k.a. How to create a budget that works)
• Benefits of a Cash Budget – Part 1

To reap the benefits of using cash in your budget, you don’t have to go exclusively to cash. Some may choose to go exclusive, but it’s not necessary. Instead, identify which categories will be most effective for using cash using the tips below.

Use should use cash for categories where either you tend to overspend or where there are a lot of transactions in a month. Groceries is a main perpetrator of both those criteria which is why I absolutely recommend funding that category with cash. Other problem categories are ones relating to household spending (light bulbs, cleaning products, etc), eating out, personal, and entertainment.

There are actually some categories where it is easier to NOT use cash. Specifically I’ll mention gas for your car. At first Emily and I used cash for gas but found it to be significantly more inconvenient, especially during the winter. After looking at our gas spending we realized that we don’t tend to overspend on gas. Our gas budget went up and down depending on the price of gas, but we weren’t more likely to drive less by using cash. I still had to commute to and from work no matter what and we don’t take a lot of trips. Gas purchases also weren’t hard to track in our financial software. We knew that if the transaction was at Texaco it was gas so it didn’t add any confusion at the end of the month. In the end we decided that it wasn’t worth it to use cash and now use a debit card.

Some categories are on the edge and could go either way. For example, haircuts is a category that I think should not be cash, but Emily likes it in cash. From my perspective it’s not hard to track haircut transactions. A transaction at SportsClips is self-evident. There aren’t a lot of haircut transactions. At most I will get one and Emilyi will get one. I’m also not likely to overspend and get haircuts more often if I’m not using cash. For me, this category doesn’t need to be in cash.

For Emily that’s not the case. She is more likely to get a haircut or styling if there’s money available for it. She also will let money accumulate from month to month and then get her hair colored with the extra money. She likes having the money in cash because as it accumulates it gives her permission to do something extra without guilt. Therefore, Emily prefers to have this category in cash.

In the end we do our haircut money in cash, but we could just as easily split the category into “his” and “hers” and do one in cash and the other not.

2. You have to commit for cash to work.

When starting to use cash for chosen categories, you have to be willing to totally commit. If you have some transactions in cash and some on credit/debit card at the end of the month, you’re going to run into the same headaches you’ve always had. This means that ideally both spouses are on board. If your spouse resists, see if he or she is willing to give it a try for just a month.

This also means that if you go to the store and forget the cash, you won’t make any purchases until you go home and get it. That’s the level of commitment it takes. I’ll admit that on rare occaisions Emily or I will break down and use the debit card, but it’s usually only if we’re far away from home and are buying something we can’t get close to home. Even then, we’ll try to borrow cash from other places first. One of us usually has some personal money with us and so we can use that cash and then get paid back from the correct category when we get home.

3. Calculate what denominations to withdraw ahead of time.

When withdrawing cash, you’ll likely be pulling it out for multiple categories at once and you’ll want to make sure you have money in the right denominations to easily fund each category. For example, if a category needs $50 and the bank only gives you your money in $20 bills, it will create an inconvenience to then have to get smaller bills.

This problem can be easily avoided by figuring out ahead of time what types of bills you need ahead of time and then requesting those bills from the banker.

4. How to keep track of my cash

There’s no right way to store and keep track of your cash. The most common method is to use envelopes.

There are three types of envelopes you can use.

1. Regular envelopes from an office supply store. Unfortunately they don’t have sizes customized for cash so you’ll have to find the closest size that fits.
2. Envelopes your bank gives you when making a withdraw. These are still a little large for my taste, but are smaller than regular envelopes and are free. Don’t be shy about asking for an extra envelope or two when making a withdraw.
3. Custom budgeting envelopes through Dave Ramsey. These are great, but cost a little extra. There are two different version which you can find using the links below.

Financial Peace University Envelope System
Deluxe Executive Envelope System

We have altered how we manage our cash from time to time. Sometimes we have an individual envelope for each category. Sometimes we keep all the cash in one envelope divided by index cards or post it notes. Feel free to experiment and find a way that works for you.

For men, using paper clips can be an easy way to separate your cash into categories. Often men won’t have as many categories as women so this is manageable. You can buy multi-colored paper clips and use a color for each category. You could also cut out a small piece of paper, write the name of the category on it, and stick it in the paper clip with the corresponding cash.

Feel free to leave any comments or ideas on your favorite way of managing cash.

5. Pull out grocery twice a month if you need to pace yourself.

A common problem, particularly when first starting to use cash is to spend too much money in the grocery category too quickly. You may be excited to have all that cash in hand and go overboard on your first shopping trip. Then, you end up on the 20th with no cash left.

To avoid running out of money prematurely, you may want to take out only half the grocery money at the beginning of the month and the other half mid way through the month. This helps you pace yourself and ensures you don’t run out of money with too much month left. If you want even more control or pacing, you could even take out a chunk once a week.

6. How to deal with purchases that go across multiple categories

Sometimes you’ll be at a store like Walmart or Target and want to make a purchase that covers multiple categories. For example, you might be buying groceries, home improvement items, and personal items all at once.

There are two main ways to deal with this situation. The first and cleanest option from an accounting perspective is to split the items apart and have the cashier do multiple transactions. I’ve done this many times and it takes hardly any extra time. The cashiers can do it easily and usually the people behind me in line don’t even notice.

The second option is to make one purchase and combine money from the appropriate category envelopes. This really only works well if you have a few items. If you have a lot of items you often don’t know how much to total will be for each category and therefore how much money to take from each category. The other disadvantage of this approach is that you might not have exact change in your categories. But for some scenarios this may work well.

The third option is to pay for everything from one category and then look at your receipt afterward, total the amounts spent in other categories and move that money to pay back the original category you spent from. I don’t prefer this method because it’s just too much work. But again, it may come in handy on occasion.

7. Get used to planning ahead.

By committing to use only cash, you have to plan ahead at times to ensure you have the cash you need with you when you need it. For example, I often keep most of my personal money at home and only take what I need when I leave the house. If I forget to take some with me or run out while I’m out and about, too bad. I have to wait to make that purchase.

8. Give both spouses cash for a category if needed.

For the most part Emily does the grocery shopping, but sometimes I’ll be out and Emily will call needing me to stop and get something. For these instances, it’s nice for me to have $20-40 of the grocery budget on hand. The rest Emily keeps. If I don’t end up needing to use it, I’ll give it back to her towards the end of the month or when she needs it.

9. Don’t be tempted to use accumulated funds improperly.

Some categories, like clothing, may accumulate significant amounts in them before they’re spent. Don’t be tempted to use those funds for something else unless you truly don’t need them. One way to prevent temptation is to leave those funds at home in a safe place rather than carrying them with you. That way you only spend the funds when you truly need them. It also decreases the likelihood they’ll get lost or stolen.

I live in a safe place and will sometimes leave the funds for these types of categories in my glove compartment. They’re convenient to get at when needed but not constantly visible to me. Out of site, out of mind.

10. Only carry what you need with you

I’ve already referred to leaving some of your cash at home or in the glove box. There’s really no use in carrying cash with you all the time if it’s from a category that you may only spend in once a month or less.
By keeping money at home, it also discourages impulse spending. You have to consciously take the money before you make the purchase.

11. You must trust and be honest.

Using cash, there is some room for dishonesty in moving money between categories or using money from another category for personal purchases. If you don’t have a trusting and honest relationship with your spouse, using cash may pose some problems. However, it’s ok to use incentives when using cash. For example, my wife and I agreed that if she underspent on groceries, she could use the remaining money to build up our food storage. It was a good incentive for her to cut coupons or save a little extra and we all got the extra bonus and security of food storage.

Do you use cash in your budget? What tips do you have?

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• 3 reasons most budgets don’t work and how to fix them (a.k.a. How to create a budget that works)
• Benefits of a Cash Budget – Part 1
• Benefits of a Cash Budget – Part 2

In part 2, I explain how budgeting will help save you time in the budgeting process.

How Cash Will Cut Your Budgeting Time By 80%

Think for a second about entering transactions into financial software like Quicken or YNAB. What are most of the transactions? By far the majority of the transactions come from categories like groceries, household, or entertainment. They are purchases at the grocery store, or walmart, or the corner convenience store. What if you took those transactions away. For most people, there are only a handful or two of transactions left that occur every month. You might have utilities, a cell phone bill, a few gas transactions, but that’s about it.

Most of Your Transactions Come From Just a Few Categories

This is a classic 80/20 example. 80% of your transactions come from 20% of your budget categories. In fact, I would guess that for many people it’s more of a 90/10 rule. 90% of their transactions come from 10% of the categories. If you’ve used financial software in the past, go check this out and see if it holds true. In fact, leave a comment and let me know if it’s true. I know for us it IS true.

Now I want you to think about the time you spend budgeting every month and what that time is spent on. If you’re like us it’s spent on entering and/or categorizing transactions from the previous month. It’s spent tracking down transaction #x and finding out what it was for. Either you don’t remember or your spouse spent it and he/she doesn’t remember. You spend time tracking down missing receipts. It’s all a big mess.

Well all of that craziness doesn’t have to be. In fact, I’m going to give you permission to stop entering every transaction. How can I do that? Well let me ask this: why do you need to enter all those transactions? Do you really want to know how much you spend on milk every month? Do you ever really care to know on an itemized basis what individual items you purchased in your grocery category? I don’t think that’s the case. If you think about it, all you really care about is spending the amount you want to spend in any given category. Well I’ve just shown that you can accomplish this goal by using cash. You don’t accomplish this goal by tracking every little thing, if fact, doing so is a lag measure and won’t have any impact on how much you spend next month. You’ll just go through the same process taking a lot of time and experiencing the same or similar results.

One Entry To Rule Them All

So am I saying that we don’t enter in our grocery transactions? That’s exactly what I’m saying. We have one entry in YNAB that is a cash withdraw for our grocery category. We don’t keep receipts, we don’t enter individual transactions. And do you know what? We have achieved our goal of staying within our budget more frequently and consistently than we ever did tracking everything.

To be more specific, we have one cash withdraw, or sometimes two over the course of the month that cover a number of cash categories. At the end of the month, we may have as little as 10 total transactions in our register for the month and most of these are for automated transactions that are easy to identify, categorize and reconcile. It has literally changed our budgeting lives.

My cousin is a great example of how using cash can decrease your time spent budgeting. She pulls out cash for all of her non-automated expenses. She doesn’t even split the money into categories. She has such a good sense of how much money they need in the month for the various categories that she can consistently stay within budget even without categories. At the end of the month, she has roughly 10 total transactions (if I’m remembering correctly) to deal with in reconciling her budget. Talk about quick and easy. Now I wouldn’t recommend lumping all your cash together at first, but as you get a better intuitive grasp on your spending over time, you can easily start combining your cash categories like she does.

The Myth of Tracking Everything

Now I can anticipate how many of you are responding right now. Your mind is rebelling against the idea that you don’t need to track every single transaction. It’s true the idea of tracking everything has been drilled into us by many financial gurus over time. In fact, I’m reading a book called Your Money or Your Life
that emphasizes the importance of tracking everything. While it’s a good book in general, I think the advice to track everything is misguided.

Let me ask, what’s so important about tracking everything? Isn’t the reason you want to track so that you can control your spending? Does tracking every transaction help? When I ask myself these questions it ultimately comes down to not overspending. As long as I’m achieving that goal, it doesn’t really matter if I have a record of every transaction.

I’ll admit there can be some benefit to detailed tracking. For example, you could do a detailed micro-level analysis of your spending. Doing so could produce some valuable, if not interesting results. It could even provide some useful insights that may help you change your behavior. For example, many people are shocked by how much they spend eating out if they don’t track that separate from their grocery category. However, doing this type of analysis usually won’t change your behavior and once you’ve found areas in which you’ve overspent, it’s too late to go back and change it. The damage is already done.

If you’re an analytical person and really want to do a detailed spending analysis, go ahead and do it, but limit it to one or two months and you should get all the value you need from it. In general, I don’t think this type of analysis is necessary and prefer a top down approach rather than a bottom up approach as I discussed in my 10 Secrets to Marketing Success Podcast in week 3.

If you’re really concerned about overspending in a particular area, rather than tracking everything in detail, make that area its own category and take out only the maximum amount of cash you’re willing to spend.

The Psychological Advantage of Cash

The biggest psychological advantage of using cash is that it helps restore your connection with money. But there was another, unanticipated advantage for me and Emily. For years Emily always felt frustrated because I was a spender and she was a saver. Actually, that’s not quite right. Emily wasn’t necessarily a saver, but she didn’t feel like she could spend money freely because she knew I was already spending plenty and therefore didn’t feel like she could spend much more. She always felt either guilt or anxiety when spending money. By using cash, it gave her permission to spend. She had a very tangible indicator telling her it was ok to spend what she needed or wanted.

For me it was useful because I could decide ahead of time what my limit was and then throughout the month could see and be aware of that limit.

Your Action Plan

To take advantage of using cash in your budget to decrease the time spent budgeting simply take out cash for those categories in which you overspend or have a lot of transactions. Then over the course of the month don’t worry about keeping receipts or recording the transactions in your financial software. At the end of the month you’ll only have a handful of transactions to deal with and reconcile and you’ll be done in a flash.

It’s changed my life and it can change yours.

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• How to Create a Master Budget
• 3 reasons most budgets don’t work and how to fix them (a.k.a. How to create a budget that works)
• How to become a personal finance “black belt” | Getting Finances Done

In week 3 I talked in considerable detail about how to create a budget that works. In week 4, I’m going to talk about a tip that has been crucial in helping my wife and I stay within our budget. It has also helped us decrease the total time we spend on budgeting from month to month.

That’s right, I’m talking about using cash in your budget.

If you’ve been following this program faithfully, you’re already using cash in your budget. In week 1 I challenged you to use cash for your groceries and to choose to other problematic categories to use cash in. Now, I’ll finally go into the reasons for using cash.

Using cash in your budget is a tough topic. People shy away from it and toss it aside as being too much of a hassle. I want to challenge you to put those beliefs aside for a moment and let me make a case for using cash.

The fact is, I know how you feel. Using cash in our budget was one of the things I fought against most. We started using cash as part of Financial Peace University. It was one of those concepts I was ready to ignore and tried to convince my wife that we shouldn’t use cash. But she wanted to give it a shot and since I’d agreed to follow the program, I reluctantly went along.

I’m glad I did.

It quickly became clear how powerful using cash in your budget is. I was quickly converted and became a big advocate for using cash. In fact, I now consider it a requisite for having an effective budget. REALLY! I don’t know a single family who considers themselves successful at budgeting that doesn’t use cash. On the flip side, I know plenty of people who struggle with their budget or struggle staying within their spending limits and are always trying to figure out why. Yet, they resist using cash. They just won’t give it a try. Or they give it a half-hearted try and quickly give up.

How We Saved $6,000 In One Year By Using Cash

So what was the result of using cash for me and Emily? Not only did we stay within our budget consistently for the first time in our marriage, but we actually spent $6,000 less the year we started using cash with no perceived decrease in lifestyle. It was mind boggling that we saved so much. We saved an average of about $500 a month. We spent less on groceries, ate out much less, and no longer made impulse credit card purchases to the tune of hundreds of dollars a month. But I never would have thought those seemingly little things would make such a big difference in our savings.

The Advantages Of Using Cash

There are several advantages of using cash in your budget, but there are mainly two that I want to emphasize.

First, using cash makes it easy to control your spending and to keep within your budget.

Second, using cash will cut as much as 80% of the time spent reconciling your budgeting at the end of the month. While I’ve already showed you how to speed up your budgeting process, using cash is the thing that will have the greatest single impact in decreasing your budgeting time. My wife and I spend 30-60 minutes a month budgeting. THAT’S IT!

In this article I’ll be addressing the first advantage of using cash.

Before I jump in let me point out that I’m not saying you need to use cash for your WHOLE budget. In fact, there are some cases in which using cash doesn’t make sense. You’ll mainly want to use cash in those categories in which you tend to overspend. This may only be 2 or 3 categories.

Controlling Spending With Cash

The Power of Instant Feedback

Cash is the perfect instant feedback mechanism. It easy to keep from overspending because when the cash is gone, you know you’re done spending. It’s really as simple as that.

Alternative Ways to Track Your Spending

When using credit cards you are totally disconnected with how much you’ve spend and how much is left to spend. Some people try to track their spending by writing everything down in a notebook, but in my own personal experience and hearing experiences of others it’s very difficult to be consistent with a system like that. Inevitably you stop keeping track.

Even using debit cards to keep track of spending doesn’t work because you’d have to constantly check your account balances. And when you do check your account balance you’ll just see a lump sum in your account and won’t know how much you have to spend in a particular category.

A third option of keeping track of how much you have left to spend would be to update your personal finance software. YNAB is particularly good at showing you how much you have left to spend. But again, this would require updating the software daily. It’s also prone to errors if you update it daily because you might miss purchases that haven’t posted to your account yet or purchases your spouse has made that you don’t know about. Not to mention it would take a lot of time and effort to keep things updated on a daily basis.

So after eliminate all those possibilities, cash stands as the ultimate way to control your spending.

Lead vs. Lag Measures

Let me explain in another way why cash works so well. There’s a concept I learned about while working at a former company called lead and lag measures. Please bear with me because this is a somewhat geeky concept, but it illustrates an important point.

Lead and lag measures are simply things we can keep track of to help change our behavior or reach goals. A simple example of a measure would be weighing yourself if your trying to lose weight.

The key here is that Lead measures are much more effective in helping us change behavior than lag measures.

Let me explain the difference between the two.

A lag measure shows what has happened in the past, whereas a lead measure is predictive as to what will happen in the future. Let’s use football as an example. A lag measure in football is the score. The score shows you what has happened previously in the game, but really doesn’t predict what will happen the rest of the game.

In contrast, a lead measure might be first downs. If you want to score, rather than simply focusing on scoring, you can focus on first downs. The more first downs you get, the higher your probability of scoring. Therefore the number of first downs are going to be at least somewhat predictive of the future score. Now obviously there’s not a 1 to 1 correlation between first downs and scoring, but there is a strong correlation nonetheless.

So instead of focusing on just the score, you can break down your goals into more accomplishable steps and measures that will help you reach your goal.

Now there’s one other type of measure called a quick lag. A quick lag looks like a lead measure, but really isn’t. The best example of a quick lag weighing yourself if you’re trying to lose weight. Many people try to use this as a type of lead measure. They use this as the primary measure for losing weight. It seems like a lead measure because you get instant feedback. However, if you think about it your weight is just showing you the results of what happened in the past. It gives you no indication of what you’ll weight tomorrow or next week or next month.

So what would be a true lead measure in this case? Well, the number of calories you eat every day would be a good lead measure. The number of calories you eat WILL be a predictor of how much you’ll weigh in the future. This also points out one more thing: good lead measures need to be controllable. Some lead measures may predict future performance, but are hard to control. Counting calories is a good lead measure because it is very controllable in addition to being highly predictive of future results.

So let’s bring this back to personal finances. Most people using their credit card or bank statements as a measure for controlling their spending.

Is looking at your statement a lead or lag measure?

It’s definitely a lag measure because it shows you what has already happened. Plus it has absolutely no bearing on what will happen next month. By the time you look at your statement it’s already too late. You’ve already over or under spent and there’s no going back. This is actually about the worst way you can try to control your spending yet it’s the method most people use.

In contrast, taking cash out to use for a budget category is like the ultimate lead measure. It’s a perfect predictor of how much you’ll spend in that category this month. Of course that’s assuming you and your spouse are truly committed to using exclusively cash for that category. If you take out $400 for groceries, you won’t be able to spend any more once the money is gone. There’s no more accidental overspending. Using cash may not perfectly predict the exact amount of money you’ll spend because you may underspend, but hey, that’s a good problem to have.

The bottom line is: Cash is a great instant-feedback mechanism that allows you to see instantly how much you have left to spend. This leads us to another reason why cash helps us control our spending.

Re-calibrating Your Relationship With Money

Cash renews or re-calibrates your connection with money. Let me explain. The use of credit and even debit cards has really disconnected people from their money. It’s easy to overspend and go into debt with credit cards because it’s like play money. You don’t actually see the money leave. It’s so abstracted that you don’t FEEL the money leaving.

Cash restores this connection. When you use cash you can see instantly at anytime how much you have left to spend. As you spend cash you see and feel it leaving. You see your wallet, or budget envelope, get smaller. There’s a critical emotional piece to having this physical, visceral experience. Cash becomes something tangible and real. You get to experience that there is an end to money when it runs out. This has a big impact on how you spend money, even if you don’t notice it at first.

As you start using cash, you’ll begin to develop a type of intuition regarding spending. When you go to the grocery store and look at your remaining cash for the month, you’ll start to get in tune with how much that will buy. If your wallet it thin, figuratively or literally, you’ll know that you need to buy only essentials; it may be bread and milk and not much else. In contrast, if your wallet is thick, you’ll know you can be more liberal in buying additional items. Either way, it definitely will INFLUENCE YOUR DECISIONS and that’s something that rarely if ever happens when using a credit or debit card.

The Big Question

There’s one last reason why using cash helps to control spending. It help you ask what I call the BIG QUESTION and that is “where is this money coming from?” When using cash, it becomes clear very quickly that you can’t be too squishy in your spending. In fact, you can’t be squishy at all. If you spend money it has to come from one of your categories and/or cash envelopes. Once we started using cash Emily and I found ourselves asking each other quite frequently “where is this money coming from?” If the expense comes from a well-defined category and we have money left for that category, the answer is self-evident. However, if we need more groceries, for example, and the cash is gone, we’d have to decide what other category we were going to take it out of.

This simple pause in the decision-making process is responsible for Emily and I saving $6,000 the first year we started using cash. By making our spending conscious we often changed our behavior not out of self-deprivation, but out of common sense.

For us, the big question seems to come up most often when eating out. Are we going to use “date night” money, “grocery” money, or “personal” money? The fact is, we will sometimes use money out of all those categories for eating out, but we still have to ask the question. Sometimes, if we’re really tight and all those categories are empty, or we need the money for something else, we’ll decide not to eat out.

Some people may view this as overly strict or restricting. But asking the big questions creates the exact decision we should be making when we spend money. Spending money is ALWAYS a trade-off decision. If you spend money on one thing you simply can’t spend it on another. Using cash just makes this decision explicit. While that can come as a harsh reality for some, it is reality nonetheless.

Now I’m not saying using cash has to force you to live a life of self-imposed restriction. If you have more money to budget to various categories and you choose that you value those categories over others, by all means increase your cash categories to the point where you almost always have money left over. I really don’t care how much you allocate. The main point is to simply live within your means and to reach your important financial goals.

But for those who are on a tight budget, using cash and learning to ask “where is this coming from” will become the key to surviving and eventually thriving.

Well, hopefully I’ve convinced most of you that using cash in your budget is worth a shot. In the next post I’ll talk about the second main advantage of using cash in your budget…decreasing your budgeting time.

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More From sjpeer

• Benefits of a Cash Budget – Part 2
• How to Create a Master Budget
• 3 reasons most budgets don’t work and how to fix them (a.k.a. How to create a budget that works)

Cash is so powerful because it will not only help you control your spending and stay within your budget, it will also help you decrease the amount of time you spent reconciling your budget at the end of the month. In fact, it’s probably the single biggest factor in decreasing the headache of reconciling your budget.

I’m going to be posting this content in a text format as well throughout the week so look for that if you’d like to read rather than listen.

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• How to Create a Master Budget
• Using a spouse agreement contract in your personal finances
• 10 Secrets to Budgeting Success (Week 3)

Fixed/Variable Model

In my post about how to create a personal budget I addressed how to create your first budget. In that article I advocated using the fixed/variable model; first allocate your fixed and semi-fixed expenses, and next allocate your variable expenses. For first-time budgeters, this makes a lot of sense and helps you first determine your hard landscape (fixed expenses) before you fill in the rest (variable expenses). This is still one of the best ways to create your first few budgets, but isn’t the most efficient way to group categories once your budget is established.

Necessity Model

The next model is the necessity model. Using this model you budget your necessities first (food, housing, clothing) and proceed from most essential to least essential. This ensures you can pay for shelter, food and clothing before you pay for your new HDTV. This can also be a useful model for novice budgeters. But it is particularly relevant if you’re in an emergency financial situation or if you’re facing bankruptcy. Give priority to the necessities and let the other expenses take a back seat. However, this model is not very useful for normal month-to-month budgeting.

Usage Situation Model

There are really only a few ways to “use” or manage money. By grouping budget categories by how the money is used you can accelerate the budgeting process.

I’ve found it most helpful to group the categories as follows:

• Automated categories – Expenses paid automatically (electronically)
• Cash (Debit) categories – Expenses that will be paid for in cash or with a debit card
• Accumulated categories – Periodic or irregular expenses that need to be saved for (these may be automated or paid for using cash or a debit card)

Grouping categories by usage situation also makes it easier to manage and keep track of your money. For example, by grouping automated categories, it’s easier to identify how much money you need in your bank account to cover those expenses and the timing of those withdraws. If you want to review your automated expenses to ensure they’re behaving as expected, you have them all at your fingertips. By grouping cash categories you can quickly calculate how much money to withdraw every month for cash expenses. By grouping accumulated categories, it’s easier to track and manage the balance of each category and where those funds reside.

Let’s look at each group individually and how to address them in your budget.

Automated Categories

When reviewing your budget, first address the automated categories. This group is pretty self-explanatory. These are all the categories that are paid automatically on a monthly basis. They are typically fixed (with a few exceptions) and the amount rarely changes. The great news is, this is the category that should take almost no time to address. You just copy the amounts from one month to the next and you’re done. You typically won’t need to have big discussions with your spouse about these categories unless the rest of your budget is very tight.

Here are some examples of Automated categories:

• Utilities
• Mortgage
• Some charitable donations
• Retirement or other long-term savings
• Subscription Services (satellite)
• Some insurance expenses
• Some medical expenses

Automated categories tend to be difficult to change without a lot of effort. For example, your mortgage payment cannot be easily or quickly changed. If you decide to switch satellite or cable providers, it’s typically a multi-week process. That’s not to say these expenses can’t change, but often it takes more time and effort to do so than other expenses.

Dealing with variable automated expenses

Some automatic expenses are variable such as utilities (gas, electric). In these cases, find out if there’s a fixed payment option. Many utility companies offer a fixed payment option that calculates a fixed average payment for 6 months or a year. If you end up paying too much, the fixed payment is adjusted down at the end of the period. Pay to little and it’s adjusted up. These programs can provide a lot of stability and predictability to a budget and should be used if possible.

If a fixed payment program is not available, you’re still ok. Simply look at how much you pay on average for that expense and budget a high average for that category. For example, our telephone provider doesn’t provide a fixed payment program so we looked at our bills and found that, on average, the bill is $80 (including internet service). It tends to regularly fluctuate up to $85 and down to $75, and very rarely goes up above $90 (my wife didn’t realize calling Canada was so expensive). We decided to budget on the high end of the typical range at $85.

By budgeting on the high side, you give your budget more stability and provide a little cushion. If we go over $80 a little, we’re covered. If we go under, we let the extra funds accumulate to cover months that go over. Don’t worry too much about the exact budget amount. Over time, it will become apparent if you’re budgeting too much or too little. If you budget too much, feel free to re-all ocate the overage and treat yourself to dinner. That will act as a cue that you can reduce the monthly allocation. On the other hand, if you find you’re always short on that category, that’s a cue to increase the allocation. I should also mention that I’m assuming you already have an emergency fund establish so that if you happen to unexpectedly go over a large amount, you’ll have the money to cover it. You can check out my article about ways to save a little cash for an emergency.

Cash (Debit) Categories

Next, address your cash (or debit) categories. These expenses are usually depleted every month; you budget $100, you spend $100. Uncontrolled, cash categories tend to be highly volatile. This is where much of your overspending can occur which is why it’s good to use cash. Fortunately, as your budget matures this group is fairly easy to address because your needs won’t change much from month to month. When you first start budgeting as a couple, there is typically a lot of discussion about how much to allocate to categories like “grocery,” but over a few months, you should settle into a sweet spot. After that, you typically won’t make major adjustments unless there’s a significant change in your financial situation.

Example cash (debit) categories are:

• Grocery (food or non-food)
• Eating out
• Clothing
• Some Medical
• Prescriptions
• Over-the-counter medications
• Babysitting
• Personal Money
• Entertainment

A good rule to follow is that any category where you tend to overspend should be cash. One benefit of grouping your cash categories is that it’s easier to calculate how much cash you need to withdraw every month because they’re all in the same place.

Accumulated Categories

Finally, look at your “accumulated” categories. “Accumulated” budget categories are expenses that may occur less frequently than monthly or that may be unpredictable. In other words, these are categories where you “accumulate” funds over time until they are needed. Accumulated categories are the least homogeneous of the three groups. Some are semi-fixed like Insurance and car registration payments. Others can be wildly variable like vacations and gifts. Some accumulated categories are easy to change while others may be difficult. For example, changing your clothing budget is not difficult to do (even though your wife might have issues with it). On the other hand, quarterly or yearly life insurance payments may take considerable effort to change, particularly if you need to research insurance companies, get a new quote, get a blood test, etc.

Unfortunately this is where a lot of the arguing, negotiating, compromising, and pleading takes place. In a more established, mature budget, this group won’t take long. But if your just starting out, or if you’ve had some changes in your financial situation, expected or unexpected, you’ll want to plan on spending some time here.

Here are some examples of Accumulated categories:

• Insurance
• Car maintenance/registration
• Savings for large purchases
• Household maintenance
• Medical
• Gifts
• Travel
• Subscriptions
• Memberships
• Car replacement (we still aren’t funding this one)
• Clothing (if not taken out in cash)

There are 2 ways to deal with accumulated expenses

1. Make equal payments

If your $100 car registration is due in 6 months, allocate $17 a month to this category (100 divided by 6). By the time the registration is due, you’ll have the money. If you use this method, be careful not to simply divide all yearly expenses by 12 months unless you really have 12 months before the payment is due. When we first started budgeting, our next life insurance payment was only 4 months away so we had to allocate more money up front so we’d have enough. Once we made the payment, however, we then had 12 full months until the next payment and reduced the monthly allocation accordingly.

You can track how much money has accumulated in a number of ways ranging from a sheet of paper to a spreadsheet to financial management software. In future posts I will address different ways of tracking these categories. In the mean time I would recommend either a basic sheet of paper, or keep track of the accumulated amount right in your budget spreadsheet next to the category name. If funds from different categories reside in more than one bank account, also note next to the category name what bank account the funds reside in.

2. Use windfall money to fill in the gaps

Most people don’t have enough money to fund all their accumulated categories in full every month because this is where many of the “wish list” categories reside. If you can’t fund every category you can rely on (or hope for) financial windfalls to fill in the gaps. When we first started budgeting, we were so tight that we simply didn’t have enough to allocate every month for gifts and vacations. But because the rest of our budget was under control, when we received a bonus or financial gift we could allocate it to these categories accordingly. As we’ve refined our budget and as our income has increased, we’ve been able to fully fund many of these categories on a monthly basis.

Speeding up the budgeting process — An example

Using these groups, here’s how our budgeting meeting usually goes.

1. We look at automated categories. No surprises there. All the expenses are the same as always. Gas and electric are on an equal-payment system. The phone bill is $5 more than usual but we’ve been under a few months and have a little extra allocated to cover it. Time spent – 1 minute.
2. We look at cash categories. Over time we’ve settled into a comfortable amount for each of these. For categories like “personal money” we’ve had many heated discussions in the past about how much should be allocated, but now that we’ve reached an agreement that we both feel comfortable with it doesn’t change from month to month. Emily calculates how much total cash she needs to withdraw this month. Time spent – 3 minutes.
3. We look at accumulated categories. We’re on track to have our next life insurance and car registration payments saved by the time they’re due. We haven’t had any major medical expenses so we’ve built up a nice little balance in that category. We discuss if we need to reduce the amount we’re allocating every month to medical but decide that we’d rather have the funds ready just in case of a medical emergency. Time spent – 5 minutes.
4. If there is any money not yet allocated, we first look to see if there are any known expenses coming up that aren’t on track to be fully funded. Typically this ends up being “gifts,” “vacation,” or a similar category. We determine which category to fund.

   If we allocated more than we have in income, we discuss which categories to take money out of. Time spent – 10 to 30 minutes

   This last step is where the bulk of our conversation takes place. By grouping the categories, we were able to get through the bulk of the budget in a matter of minutes. Sometimes you can’t avoid lengthy budget conversations when you have an unusual month or your financial situation changes. But on an average month we can literally get through our budget as a couple in 15 minutes.

Note: the times indicated don’t include the time spent to reconcile last month’s budget.

Little distinctions like this can really streamline the budgeting process over time. What tricks do you have for streamlining your budget?

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Greg over at StackBacks.com has a unique and GTD friendly way of managing cash involving envelopes, index cards, and paper clips. His method is a great way of divvying out your cash so you don’t spend it all at the beginning of the month, leaving you living like a pauper at the end of the month. It’s essentially a sort of cash tickler file (look under “Tools and techniques”).

Please let us know how you manage your cash!

Cash Allowance File

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Christmas tends to be a very stressful time financially. Most people grossly underestimate how much they are really going to spend and often take on additional debt to pay for all the extra goodies. With a little planning and forethought, you can still have a full tree without taking on additional debt. Wouldn’t it be nice to not worry about money this holiday season?

1. Decide ahead of time how much you plan to spend on whom.

The first step is to create a spending plan on paper (or a spreadsheet) before you start shopping. By looking at all of your planned gift giving at once, you’ll make better decisions once you get into the thick of holiday shopping.

Sit down together with your spouse and write out a list of everyone you can possibly think of that you would want to give gifts to. Ideally, do this in a spreadsheet. Here’s a list to get you going.

• Immediate Family
• Extended family
• In-laws
• Cousins
• Aunts and Uncles
• Grandparents
• Friends
• Co-workers
• Neighbors
• Community/Civic Acquaintances
• Church members
• Include any people you want to send a Christmas card to

Keep adding people, even if you’re not sure you’ll give them a gift. The idea is to empty your brain and make sure you don’t experience the “oh, I forgot to get so-and-so a present” phenomenon. One of the reasons people overspend during the holidays is because they only budget for their family. Most people realistically buy many friends and acquaintances gifts as well.

Once you’ve completed your list, record how much you think you’ll spend on each person. If you don’t plan on buying a gift for a person listed, simply put $0. At this point, don’t worry about the total, just list what you’d like to spend. You’re estimates will be much more accurate if you think specifically what you’d like to get for that person rather than just putting a random dollar amount. List off to the side the item(s) you plan to buy. Of course, this process will be more involved when estimating planned spending for family members and may require multiple entries for one person.

Now add all the amounts together to see the damage. When my wife and I did this exercise, we were unpleasantly surprised at the total. It was way more than we were planning on spending.

Compare the total with the amount your were planning on budgeting for Christmas. Assuming the total exceeds your planning budget you need to either increase your budget or start cutting down your list. Keep reading for some great ideas at cutting your Christmas spending.

The whole point of this little exercise is to make your holiday spending explicit and conscious rather than spending blindly through the holidays only to find a very unpleasant surprise when the January bills arrive.

2. Give homemade gifts

It might seem cheap to give homemade gifts, but bare with me, they can be quite nice. When it comes to gifts for friends and acquaintances, it’s often the thought that counts more than the gift anyway. Here are a couple ideas.

• Cookie/Cake mix – We’ve received this gift several times and always enjoy it. You just take a canning jar and fill it with the dry mix in the right measurements to make cookies or a cake. You can use either a store bought mix or “homemade” ingredients (flour, sugar, chocolate chips, etc.). You can spruce it up by putting a bow around the jar. Or, let your kids be creative and decorate the jar their own way.
• Family history chart – We made our own 10 generation family history chart for my parents based on a design by Ancestry Circle. We printed it out on a poster-sized sheet and bought a $20 frame for it. It was a fair amount of work but was a meaningful and very unique gift. If you would like the template Adobe Illustrator file, send me an email. If you’re not looking to save money, Ancestry Circle will print a custom chart using your family history GEDCOM file for a reasonable fee of $79.95.
• Make cookies or treats for neighborhood gifts. By simply giving a plate of cookies or brownies, you could give to all your neighbors for under $10.
• Personalized Stationary – One year we made homemade stationary using Microsoft Word and a printer. We bought a ream of fancy paper and a box of matching envelopes. We had the paper cut in half at Kinkos and printed a design (using a word template) along with the person’s name on each sheet.
• Pictures make great inexpensive gifts for family members. Do your parents and grandparents have your most recent family photo? There’s probably nothing they’d rather have.
• Burn family photos or family history to a CD. Total cost: less than $0.10 each.
• Give homemade gift certificates. You can give an elderly person in your neighborhood a certificate to mow her lawn or shovel her snow. Give a certificate for free baby sitting to acquaintances with children. Give your spouse a certificate for a massage. Your creativity is your only limitation on this one.

3. Shop online and use RSS feeds to find great deals

It’s still not too late to find great deals online in time for Christmas. Learn how to use RSS feeds for shopping to be notified when an item you want goes on sale. Many online stores allow you to make purchases just days before Christmas and still have them shipped in time for the big day.

4. Buy used when possible

Using RSS feeds makes it easy to find items for sale on eBay or Craigslist. This is particularly great for younger children who don’t care if an item is used. Would you rather pay up to $50 for a Little Tykes basketball hoop or $5? For adults, electronic items can make great used gifts. People upgrade so often, you can find great deals on computers or mp3 players that are still in perfect working condition.

5. Give your “Favorite Things”

My father started this tradition and my wife and I have adopted the idea. By giving inexpensive items that you love and use everyday, not only will the gift be more meaningful, but the recipient will think of you whenever he/she uses the gift. By giving a gift with meaning, you deemphasize how much the item cost. Last year, my sister gave me a little packet of some of her favorite things that included her favorite gum, mints, and beverage. I loved it. It was neat for her to share those things with me and I could have cared less how much she spent.

6. Find great children’s gifts for under $5

Target, Wal-Mart and any dollar store have some great gifts for under $5 that kids love. Target and Wal-mart both have great generic-brand toy packages in $5, $10, and $15 increments. These toy sets include balls, play doctor kits, die-cast cars, doll sets, toy trucks, a velcro target and balls, and train sets.

7. Tell your family you’re trying to get out of debt

Let your family and friends know that you’ll be giving small gifts, or no gifts at all, because you’re trying to avoid debt during the holidays. Your family and friends will respect the fact that you’re aggressively trying to get out of debt and you’ll get the added benefit of their support. Of course, only do this if it’s true.

8. Make an agreement with others about gifts

The fact is, your friends and family are probably stressing about Christmas finances just as much as you are. Approach them with the idea of making a pact to not exchange gifts this year or to keep the gifts within a certain dollar amount. You’ll both be relieved to not have high expectations hanging over your heads about what to give and how much to spend.

9. Buy them Total Money Makeover for $10 a piece

Dave Ramsey sells his hardcover “Total Money Makeover” books for $10 a piece if you buy a pack of 10. Note: the link to his online store was broken as of this writing. I’ll keep checking and post the link when it’s working. While it might seem like a lot to drop $100 on books, you’ll actually be giving a $17 gift for only $10 while taking care of 10 people on your gift-giving list. Plus, books make the best gifts in my humble opinion.

10. Use cash and/or save receipts

I’ll admit that it’s tough to use cash when you’re making so many purchases in such a small time frame. Credit and Debit cards really are more convenient. But if you really want to guarantee you’ll spend within your means, you’re best off dividing up your Christmas funds and giving cash to each family member. Once they’re out, they’re done spending.

If paying cash is not realistic for you, be sure to save all your receipts. Empty the receipts from your wallet at the end of a shopping day and put them in an envelope for safe keeping. Before you wrap your gifts, you can review how much you spent and, if you’re over budget, you can decide which gifts to return. With all the gifts in front of you, it’s easier to make trade-off decisions about which ones to keep. When you’re at the store in a shopping frenzy, it’s much harder to make such a level-headed decision.

Decide not to go into more debt this holiday season

Most importantly, make a decision along with your family not to go into additional debt during the holidays. You don’t want to be “experiencing” Christmas long after it’s over and the thrill of new toys has faded.

What do you do to save money during the holidays?

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Becoming a black belt and having a “mind like water” in your personal finances is very similar. It means you can take whatever is thrown at you without knocking your finances out of control. You can respond to any situation with perfect balance. Unexpected events or changes in your finances, good or bad, can be handled with optimum efficiency, and little or no stress. It means you can direct the flow of money where you need it almost effortlessly.

In an effort to help people gauge where they are in their personal finance development, I’ve defined what people at the various “belts” might look like. Where are you?

White Belt

You’ve recognized there is a problem with your finances and have committed to taking control. Recognition that there’s problem may come as a nagging doubt that you’re not meeting all your financial goals or a harsh reality check as you face mounting debt. You have a lot of stress concerning finances (even if you’re living within your means). You tend to fight with your spouse every time you discuss financial matters. You recognize your spending isn’t in line with your true values. You have no idea where all the money goes from month to month. You may be living paycheck to paycheck. If you saved $5 on your phone bill, it would just disappear somewhere but you don’t know where. Your idea of an emergency fund is a credit card or Home Equity Line of Credit. You frequently pay late fees on your bills and unnecessary bank fees. Net worth? What’s that?

Despite your lack of financial control, you have a strong resolve to take action even though the thought of facing the “deep mess” of your finances seems overwhelming. You and your spouse have agreed to work together. In an effort to get your spending under control, you’ve started using cash for your “out-of-control” budget categories. You’ve stopped using credit cards somewhat reluctantly and possibly out of the sheer pain of your dire financial straights. Despite some complaining, your family has agreed to use cash as well. You’ve taken initial steps to figure out what your basic monthly income and expenses are and have tried budgeting for at least one month even though it doesn’t match reality yet.

Most importantly, you’re no longer willing to BE IN DEBT!

You’re no longer willing to constantly WORRY ABOUT MONEY!

You’re no longer willing to FIGHT ABOUT MONEY!

You’re no longer willing to PAY LATE FEES!

You’re committed to TAKING RESPONSIBILITY FOR YOUR FINANCES!

You’re committed to WORKING THROUGH FINANCIAL ISSUES TOGETHER WITH YOUR SPOUSE!

White belts come in many shapes and sizes. Of course, those steeped in debt and on the verge of bankruptcy can be white belts, but so can those who are living within their means (see below). Being a white belt means you don’t have total control over where your money goes. Your spending doesn’t reflect your true values and is not conscious. The white belt is about recognition and commitment. You’ve recognized a need to change and are committed to doing what it takes to change.

Green Belt

You’re well under way implementing your financial-management plan. You’ve budgeted for at least 3 months in a row and have worked many of the kinks out. Your budget actually reflects reality.

You meet with your spouse about every two weeks to keep things on track. You often have to implement the 30-minute rule and meet several days in a row to prevent total melt-downs.

You’ve taken all credit cards out of your wallet and are using cash for all of your “in-person” spending. As a result, for the first time you feel like you have control over your spending. You’ve even started developing your own unique ways of managing your cash and have a tendency to give spontaneous testimonials about the virtues of cash whenever someone acknowledges your use of a cash envelope.

You’re well under way saving for a short-term emergency fund. You may not have it fully funded yet but you already notice feeling much less stressed having at least something in place. For the first time in your life, you may have even experienced an emergency and had the money to pay for it. You have created an initial net worth statement and have a general idea about your overall financial status.

If you saved $5 on your phone bill, you could probably redirect it rather than letting it disappear. You no longer pay late fees or bank fees. If necessary, you’ve made major changes in your lifestyle to ensure you can live well within your means.

Brown Belt

You’ve been on a zero-based budget for over 6 months and things are really humming. You may have occasional refinements, but things are mostly on cruise control. You’re able to manage your finances on one meeting a month and are able to get through most meetings without any arguments.

You’ve gone through at least one set of envelopes. You find that you’re keeping the cash envelopes the bank gives you when you cash a check or make a withdrawal because they are a better size than regular envelopes.

You’re friends have started noticing that you pay cash all the time and have asked you about it. You find yourself preaching the cash gospel and sharing your success whenever you can.

You have a fully-funded short-term emergency fund and have started reducing consumer debt or increasing retirement savings. You have a strong sense of control over your finances and can see significant improvement every time you refresh your net worth report (which you do at least once a quarter). You and your spouse have reconciled your financial differences and have a new-found sense of unity when it comes to finances. You’ve created a list of rules concerning what you both consider to be an emergency as well as what you want to do with any unexpected windfall money. By making these decisions ahead of time while you’re calm, you avoid big arguments when these events occur.

Black Belt

You laugh in the face of emergencies (mua-ha-ha) and can easily and confidently deal with anything thrown at you. Seriously, for all practical purposes financial emergencies don’t really exist for you any more. If you save $5 on a phone bill, you’re financial system allows you to know about it and easily redirect it exactly where you want. You have complete financial control over every dollar.

You no longer worry about finances. Instead of worrying about how to pay the bills on time, you think about what investments to make or which debt to pay off next. You’re amazed and shocked that people even pay late fees (you obviously are having a bout of selective amnesia). You are aggressively on track to pay off all consumer debt and/or save for retirement. In fact, sometimes you find it hard to spend extra funds because you’re so excited to become debt-free that you want to reduce your debt instead.

You finally feel like where you spend your money is a reflection of your true values. You and your spouse see eye-to-eye concerning finances. You only have major financial discussions when your financial situation changes dramatically.

You not only calculate your net worth quarterly, but also have calculated when you’ll become financially independent.

You kind of wish you’d get fired so you could find a job you really like (you have a full emergency fund and could get by for 3 to 6 months without any income). You only have to spend about 30 minutes a month on average managing your finances. You’ve cut up all your credit cards because you just don’t need or want them anymore.

Your belt level isn’t about debt, savings, or your net worth.

Some of you may have noticed that my description of the belts didn’t include savings percentages or require you to be debt-free. Your belt level isn’t about debt, savings, or your net worth. It’s about your ability to control your money, ensuring that each dollar is directed where you want. I’m sure I’ll get a lot of flack for saying this. Of course, savings and debt elimination are cornerstones of a solid financial foundation. But to enable you to save and pay off debt, you first have to get a handle on your inflows and outflows. As you gain greater levels of financial control, you can easily reach your savings and debt-reduction goals at an ever-accelerated rate.

The good news is, you can become a financial black belt even if you still have debt or haven’t reached your long-term goals. Of course, if you are a black belt, it won’t be for long before you do. As you progress in your career and get raises, or as you receive windfalls, you will be able to direct those extra funds with great focus and power to eliminate debt and reach your long-term goals. That’s the power of a black belt.

Take your finances to an “11″

I can’t avoid referencing this segment from This Is Spinal Tap. If you haven’t seen it, you should take a look.

I know many people who live within their means, pay off their credit card bill every month, and think they have arrived in terms of financial management. But the fact is, you can do these things and still be a financial white belt. I know this for a fact because I’ve been there.

There was a time when our income greatly exceeded our expenses. We saved ten percent and gave to our church. We also lived large and bought just about anything we wanted and were still living within our means. For the most part, we just accumulated a bunch of “stuff” and made a lot of emotional, at-the-register purchases. As we look back we kick ourselves for not using that money in a more conscious way. Had we been financial black belts, we could have greatly accelerated our journey to financial independence. Today, even though we have downgraded to a single income and increased our expenses (mortgage, child), we are doing more with what we have now than we did with two incomes, no children, and low living expenses. As a result we have been able to reach financial goals with tremendous speed and ease.

I’m not saying you have to choose between having fun with your money and saving it for later. As a black belt, you can set aside funds for frivolous spending and still aggressively meet your financial goals. The key is to spend consciously, making decisions as they relate to your values and your finances as a whole. If you plan wisely, you can have the best of both worlds.

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Q: what do you think about not spending anything on credit cards? everyone else is in trouble so why not use cash only!”

For the past few weeks I couldn’t get this statement off my mind. It’s one thing to have a strong position . It’s quite another to insult those who follow a perfectly legitimate and arguably superior system of financial management.

To resolve this issue, or at least let the blog-reading community decide for themselves, I challenge Ramit to a good-spirited showdown: Credit Cards vs. Cash. Ramit can present the credit-card arguments and I’ll present the cash/debit arguments. The readers on each side can also chime in. I read a similar showdown about productivity a while back and thought it was useful.

Please leave a comment and let us know what questions or views do you have about credit cards vs. cash? What questions would you want to see addressed if a showdown takes place?

If Ramit accepts we’ll decide the terms, time, and format. Let’s have Ramit express his spirited feelings in a more articulate and useful way.

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